Through the years, Prime Properties has worked hard to set its services apart with a truly consultative approach that takes the time to carefully assess each opportunity. Many times when working with a client on a real estate investment that has meant seeing possibilities that others did not.
An Initial Analysis of the Real Estate Investment Property
In a notable example, a client asked Prime Properties to sell the real estate of a skilled nursing facility as an investment property. After analyzing the balance sheet, the term of the lease, the stability of the tenancy, the condition of the real estate, and its location, we were able to advise the seller of an asking price range of $7.2M to $7.5M.
The seller required all cash at closing and was motivated to act quickly for other opportunities. Therefore, as part of the terms of the sale, our experts researched the availability funding options for a prospective buyer and prepared proforma income statements and other projections.
Prime Properties Prepares a Marketing Campaign
Taking the financials and adding a narrative, maps, the lease and tenant information, we prepared a marketing campaign for the investment property. Because we focused our marketing on net income potential, we were able to make the opportunity attractive to both private and institutional investors with a Cap Rate (see below) of 9.6% to 10.0% in a 7.5% market.
Understanding Cap Rate
One quick and easy metric frequently used in evaluating real estate is Cap Rate (capitalization rate). It is calculated by dividing the annual NOI (net operating income) by the purchase price. In this case, the annual NOI was $720,000.
The result was several potential buyers offered a Letter of Intent. A Letter of Intent is frequently non-binding and, as such, until we were able to move to binding contract, we continued to market the investment property.
Seeing a Better Solution
One local investor we had worked with previously was very interested in the opportunity, but felt that it might be beyond his capacity. A solution that immediately came to mind was to share the deal with partners. In this case, partners who understood the tenant’s business model and, in fact, felt that the opportunity was even better than had been represented. We asked ourselves if the business might be available as well.
Read the second part of this article to learn how Prime Properties combined the vision to look ‘outside the box’ for a creative real estate investment solution, with the relationships and trust they had developed with all parties, and brought the deal to an exciting and unexpected conclusion.
Speak Your Mind